# STAT 200 level question

An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing operation. Consider the following sample of production volumes and total cost data for a manufacturing operation.

Production Volume Total Cost

(Units) ($)

400 4,000

450 5,000

550 5,400

600 5,900

700 6,400

750 7,000

a.

Use the data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.

Use the data to develop an estimated regression equation that could be used to predict the total cost for a given production volume.

b. What is the variable cost per unit produced?

c. Compute the coefficient of determination. What percentage of the variation in total cost can be explained by production volume?

d.

The company’s production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation?

The company’s production schedule shows 500 units must be produced next month. What is the estimated total cost for this operation?